by Adam Berg
Binary options, also sometimes referred to as Fixed Return Options, or FRO’s, is one of the easiest and simplest types of trading. They’re known as Fixed Return Options simply because the payout included is predetermined, as well as fixed. While investing in binary options, the trader just has to observe the direction of the instrument, or the price of the underlying asset, and should draw a conclusion whether the price is going to move in the upward, or downward, direction without considering the other factors.
The payout in binary options is fixed. Due to this, investors trading are already aware how much they are going to gain or lose. Furthermore, the risk of investing in binary options is limited whereas the earning potential is enormous. This has made investing in binary options popular between the investors. There are actually two variants of options trading. These include the put option, and the call option.
1. Put Option: The put options are the ones wherein the trader gets the right to sell the underlying asset.
2. Call Option: The call options are the ones wherein the trader gets the right to buy the underlying asset.
The Different Types Of Binary Options
You can find a lot of different types of binary options. These binary options are differentiated dependent on their fulfillment of certain conditions. The payout for these options is determined by the investor, and the trader gets the predetermined payout if the conditional scenario is fulfilled. The following are some of the different types of binary options.
Â·One-Touch Binary Option: As mentioned in the name, the trader sets the rate of the currency. The rate that is set for the currency is known as a trigger. In case of one-touch binary options, if the currency touches the trigger, the investor gets a predetermined amount of payout. Thus, in a one-touch binary option trade, the trader is totally informed about his or her potential profits and losses.
Â·No-Touch Binary Option: As the name suggests, the no touch binary options are the ones wherein the trader sets the condition as to what profit he or she is going to generate provided the currency doesn’t hit the specified trigger before the estimated time. The most important thing to note about this type of option is that the payout is low, especially if the trigger is far from the spot rate. This mostly happens because the probability of currency touching the strike price is very high in the case of no touch binary options.
Â·Double One-Touch Binary Option: In this case, the trader sets two triggers, and makes a predetermined profit if either of the triggers is touched. Investors trade into this kind of binary option in particular if there is a lot of volatility in the market when the traders are unaware where the market is moving.
Â·Double No-Touch Binary Option: These are completely opposite to the double one touch options. Investors trade in this type of option based on the condition that the currency would not hit either of the two set triggers. This type of trade is mostly carried out when the market is filled with low volatility.
Traders often mix these types of options, and use numerous strategies to trade effectively. The approach of combining the different types of options allows the traders to reduce their risks. Some investors trade in binary options to hedge their investments, and to secure their funds.